The Dodd-Frank Act: Who Will Protect Consumers?

The governments of the United States and other leading nations have been launching concerted regulatory initiatives that seek to promote financial stability. A pivotal initiative, introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), has been the creation of the Consumer Financial Protection Bureau (CFPB), an independent regulatory agency within the Federal Reserve System. The CFPB began taking consumer complaints about credit cards in July 2011, and has expanded its efforts to cover all types of consumer banking products to include mortgages, private student loans, and other consumer bank products and services. The primary objective of the act is to manage “conduct risk” and /or prevent UDAAP (Unfair Deceptive Acts and Practices) violations, while striving to maintain public confidence in the banking system. A recent example of UDAAP violations can be seen with the 2012 CFPB punitive fines to many US card issuers for the marketing actions of both internal and 3rd party customer contact representatives in the sale of Add On Products, debt protection insurance, reward programs, and unemployment coverage.

Highlights of the legislation

Consumer Protection with Authority and Independence: Created a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.
Ends Too Big to Fail Bailouts: Ends the possibility that taxpayers will be asked to write a check to bail out financial firms that threaten the economy by: creating a safe way to liquidate failed financial firms; imposing tough new capital and leverage requirements that make it undesirable to get too big; updating the Fed's authority to allow system-wide support but no longer prop up individual firms; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.
Transparency & Accountability for Exotic Instruments: Identifies and eliminates loopholes that allow risky and abusive practices to go unnoticed and unregulated -- including over-the-counter derivatives, asset-backed securities, hedge funds, mortgage brokers and payday lenders.
Executive Compensation and Corporate Governance: Provides shareholders with a say on pay and corporate affairs with a non-binding vote on executive compensation and golden parachutes.
Enforces Regulations on the Books: Strengthens oversight and empowers regulators to aggressively pursue financial fraud, conflicts of interest and manipulation of the system. This benefits special interests at the expense of American families and businesses.

The overview of CFPB gives you an idea on how it will help the consumers but it also had implications on banks which I will cover in my next blog.

Do you think the Dodd Frank Act can help consumers? Do write in with your views.

About the Author

Edmund Tribue is a risk, operations, and compliance veteran with decades of experience across banks, supply vendors, technology providers and buy side firms. He specializes in all areas of lifecycle credit and fraud risk management, retail regulatory compliance, and portfolio loan servicing, with recent focus in providing credit and fraud risk management solutions to global credit card issuers. Additionally, he has experience in both consumer and SME product lines to include credit card, unsecured loans, secured loans, sales finance and home equity portfolios.

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